Project Agora, the cross-border payments project proposed by the Bank for International Settlements (BIS), has received the backing of 41 private financial institutions.
Announced earlier this year, the project has now reached the design stage. The objective of Project Agora is to examine how tokenized commercial bank deposits can be integrated with central bank digital currencies (CBDCs) on a centralized platform.
In the current system, cross-border payments involve two separate actions: messages are sent to banks detailing how clients should be credited, followed by the transfer of funds. Tokenization technology has the potential to unify these processes, making payments more secure and efficient, and allowing banks to update their ledgers in real time.
“Unified ledger is all about disrupting the legacy model of correspondent banking and making cross-border less expensive, less risky and more efficient,” said Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research. “It also opens up payments to previously unbanked demographics. What isn’t being spoken about much is the potential for this to be the infrastructure that ties together instant payments from around the globe, which does not yet exist. The players involved in Project Agora are the obvious candidates to make this happen.”
Structural Inefficiencies
The unified ledger concept behind Project Agora addresses structural inefficiencies in the existing international payments system. Due to the increase in fraud and the vulnerabilities of cross-border payments, the project emphasizes establishing a standard where Know Your Customer verification and anti-money laundering checks are central.
In addition to tackling fraud, a cross-border payments standard will have to account for various country-specific regulatory and technical environments, as well as different time zones.
Because of those variabilities, the unified ledger in Project Agora is designed with an open architecture that can be programmed and modified. In addition, tokenized deposits and CBDC will be housed in separate sections of the unified ledger, with their interactions governed by smart contracts.
Driving Innovation
BIS is a consortium of seven central banks, including the Bank of France, Swiss National Bank, Bank of Japan, Bank of Korea, Bank of Mexico, Bank of England, and the Federal Reserve Bank of New York. The umbrella organization’s goal is to drive innovation in global financial systems.
The consortium also includes private sector participants, with some of the 41 members being Visa, Mastercard, JPMorgan Chase, Swift, and Monex. Participants in Project Agora are expected to take part in the project until the end of 2025, when the consortium will release its findings.
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